KUALA LUMPUR (Sept 22): Hong Leong Investment Bank (HLIB) Research maintained its "buy" call and target price (TP) of 63 sen for GDB Holdings Bhd after the company's first-half financial results matched market estimates and with operations expected to normalise by the fourth quarter ending Dec 31, 2021 (4QFY21). 

In a note today, HLIB Research analyst Edwin Woo said that the construction service firm’s first half ended June 30, 2021 (1HFY21) results were within the research house's expectations, with higher margins making up the lower expected revenue.

“GDB’s 1HFY21 core earnings of RM14.8 million (53% year-on-year [y-o-y]) were within our expectations at 48% of our FY21 estimate. While revenue missed, margins came in better than expected with the net margin surprising on the upside by 1.7%,” he added.

Woo noted that the research house earlier slashed its margin assumptions down on account of a surge in various material costs and additional standard operating procedure (SOP) compliance costs.

“[GDB] management’s estimated impact of material cost pressure is slightly less than 1% at the net margin level, which we may have over-accounted for,” he said.

On Aug 19, GDB reported that its net profit for 2QFY21 increased by 25% to RM4.92 million from RM3.94 million the year prior, while revenue more than doubled to RM80.72 million from RM38.91 million.

For 1HFY21, GDB said its cumulative net profit was up 42% at RM13.72 million, from RM9.66 million a year earlier, while revenue was also higher at RM191.82 million versus RM138.79 million.

Today, Woo said that the construction service firm had ramped up to a 100% operating rate since early September 2021 for its Peninsular Malaysia projects, which make up 94% of its outstanding order book.

“Its HCKK project in Sabah remained at 60% operating capacity, plagued by the state’s relatively slow vaccination progress. Nonetheless, at 6% of its order book, by and large GDB’s operations would have normalised by 4QFY21.

“GDB is expecting to register a top-line surge in 2022 as its sizeable projects, namely 8 Conlay and Park Regent, move into stronger phases of the billing cycle,” he added.

Woo noted that should this materialise smoothly, there would be an upside to the research house’s FY22 forecasts.

“Nonetheless, given the likely intermittent nature of operations moving forward into the endemic phase, we make no changes to our estimates. To our understanding, virus spread is still likely even among the vaccinated,” he said.

Woo said that GDB’s order book stood at RM1.8 billion, translating into a five times cover on its FY20 revenue to be executed over the next two to three years.

“EOTs (extensions of time) have been obtained for all projects, which are provided for under a contractual clause. [GDB] management is confident that with the revised timelines, the projects will be completed on schedule,” he added.

He also noted that GDB’s tender book stood at RM1.7 billion, with approximately two-thirds of outstanding tenders called last year but awards were delayed due to the pandemic, exacerbated by escalating costs.

“Meanwhile, the remaining one-third is for a rather sizeable project with the award decision expected in October 2021. Our forecasts are based on nil replenishment for FY21 given the repeated job delays that have plagued the sector this year.”

HLIB Research adjusted its earnings forecasts for GDB for FY21, FY22, and FY23 by -0.2%, 3.3% and 9% respectively after adjusting for cost assumptions. 

At the time of writing today, GDB’s share price had gained 1.5 sen or 3.41% to 45.5 sen, valuing the group at RM421.82 million.